Pinky and the Brain

Using an expensive education to ramble about Economics, Politics and English Beer

Sunday, May 27, 2007

Immigration

Andrew Samwick, from Dartmouth, makes three important points regarding the immigration debate over at his blog, Vox Baby:

1) Is immigration from Mexico just like any other wave of immigration?The historical success of immigration in this country has been based on immigrants who left the old country behind, to assimilate and to blend their culture with the existing American culture. Mexico is right next door. The presumption that most immigrants will assimilate is much weaker, if not plain wrong. We should be very wary of absorbing so many immigrants, even legal immigrants, from a neighboring country whose objectives may not coincide with our own.

2) Is a guest worker program a good idea?I regard a guest worker program as a form of second-class citizenry, and I do not support the creation of a second-class citizenry. Citizenship to me is not incidental to an economic relationship. Once we legitimize a second-class citizenry, their pleas to be elevated to first-class citizenry will be difficult to ignore, particularly given our national history of inclusion and equality. Once we legitimize frequent border crossings, we take ownership of the social problems that result from explicitly transitory populations NOT rooted to family relationships in a particular place. Show me the shining examples of guest worker programs in other large industrialized countries and I'll change my mind.

3) Are there jobs that Americans won’t do (this one is straight from an earlier post)?There are no jobs that Americans refuse to perform. There may be jobs that Americans refuse to perform at the prevailing wage rates. This simply means that the wage rates should rise and the number of jobs should fall, until the number of jobs matches the number of people authorized to work in the country who are willing to perform them. If it turns out that with these higher prevailing wage rates, the employer can no longer operate at a profit, then the employer should cease operations--or relocate to a place where labor and other costs are sufficiently cheap as to allow a profitable business.

Points one and two address fundamental problems with the current immigration bill. The third point, although it could be interpreted as anti-immigration, highlights why low skilled Americans lose with increased immigration.

I support immigration, particularly high-skilled immigration. However, America does not adequately protecting its poor and sick, its disenfranchised and marginalized; it is wrong of us to simply replace them with a new wave of immigrants.

Any immigration package must first help those citizens who have been left behind. After that, as Andrew suggests, we must be careful to ensure that future citizens come for more than just financial prosperity. American ideals are larger than that and we must keep it that way.

Saturday, May 26, 2007

Libertarian Paternalism

From a debate on the merits of government intervention at Econoblog, Richard Thaler writes:

Let's recapitulate. People make mistakes, so sometimes they can be helped. It is possible to help without coercion. That is libertarian paternalism. The concept can be and is used in both the public and private sectors. For example, in London, pedestrians from abroad are reminded by signs on the pavement to "look right" because their instincts from back home are to expect traffic to approach from the left. No one is forced to look right, but fewer pedestrians are hit by trucks.

Another example comes from Sweden, which launched a partial privatization of their social security system in 2000. The plan was open to any fund, which meant that participants faced 456 options. There was also a very well-designed default fund -- using private managers selected by the government -- that offered global diversification at very low fees (16 basis points). By any standard, both ex ante and ex post, the participants who selected their own portfolio of funds did worse than those who took the default plan. The main mistake the government made in designing this plan was to discourage participants from choosing the default fund, perhaps thinking, as Mario does, that choosing for oneself is always the best approach.

Mario thinks we are naïve about government. We think he is naïve about firms. Does he think that the companies that offered stock options to student loan officers to induce them to feature their loans had the "actual preferences" of the students at heart? Maximizing profits does not always mean maximizing the welfare of the customers.

Finally Mario seems to have a phobia about slippery slopes. I guess he thinks that if governments start with signs that say "look right," the next thing you know we will have Prohibition coming back. By the same logic, we should worry that if libertarians succeed in eliminating rent control that we will be soon down the slippery slope toward anarchy. Slippery slope arguments should be avoided unless there is proof that the slope is greased. In our case, by insisting, as we do, on only libertarian paternalism, the slope runs into a brick wall before it even gets started. And besides, what is the alternative? Inept neglect?

Conclusion: Ronald Reagan was wrong; the government is not the problem.

Tuesday, May 22, 2007

69%

Saturday, May 19, 2007

The Imperial Presidency

The Economist has an illuminating editorial about America's love for royalty, despite our deep Federalist traditions. Lets hope America remembers the importance of decentralized power when we go to vote for the next presidency. Hillary Clinton symbolizes the concentration of power and rise of a political elite which many people find troubling in principle, but, as seen with the election of George W., few voters are willing to do anything about.

If we value the life-stories of our most loved presidents, such as Lincoln's journey from a log-cabin to the White house, we won't vote for another Imperial President. King George already taught us this lesson.